Long-term play

Features - investments

Cox Enterprises recently invested in Mucci Farms as a long-term bet on CEA’s financial upside.

August 16, 2022

Mucci Farms is a vertically integrated produce marketing business with a combined growing space of 2,000+ acres.
Photos courtesy of Mucci Farms

In June, Cox Enterprises announced that it had made a “significant investment” in Mucci Farms, the Ontario-based greenhouse vegetable company. The financial details were not disclosed.

According to the announcement, Cox says the Mucci deal is “the next phase in Cox building a multibillion-dollar controlled environment agriculture (CEA) business and establishing Cox as one of the leading providers of sustainable produce across North America.” In addition to Mucci, Cox purchased BrightFarms in 2021 after beginning a financial relationship with the grower in 2018 and acquired a majority stake in 2021.

According to Steve Bradley, the vice president of cleantech at Cox Enterprises, the company sees CEA businesses like Mucci and BrightFarms as sustainable, purpose-driven and profitable bets for investments. It is likely they’ll continue to explore the broader CEA space for more opportunities beyond these acquisitions, as well.

“Mucci Farms combines its multigenerational farming expertise and technological innovations to grow high-quality, great tasting produce,” said Bradley. “It’s the perfect complement to our expanding footprint in sustainable agriculture, and we look forward to working together with the Mucci Farms team to transform the industry.”

“[Cox] comes into the investment with experience — which is what they’ve done with BrightFarms,” says Mucci chief finance officer Mat Walsh. “That allowed them to dabble in the controlled ag space and they are looking for what I consider a platform to take on more of a presence in not only the controlled ag, farming space, but also the marketing component. And they have been very local in terms of how, with both BrightFarms and Mucci, they have a presence they can continue to build on as this industry continues to grow over the next 10, 15, 20 years.”

The Mucci component

Mucci is different than other players in the CEA space. They have been around for 60 years and have been run by multiple generations of the Mucci family. Before the deal with Cox, they had already expanded from Ontario into the U.S. and Mexico, purchased other farms including pepper grower Orangeline Farms and have retail relationships with large chains such as Costco.

So why did they go this route? Previously, according to Walsh, Mucci had a private equity partner called Novacap it used to raise capital. He says they were reaching the end of that investment horizon and it was time to find a new opportunity.

The investment by Cox Enterprises will allow Mucci to continue its expansion mode. .

“That group started investing with us in 2016 and typically have eight- to 10-year investments,” says Walsh. “Our business is a very capital intensive business. So when we were discussing how to use capital, where to build next and where we are going to grow next, the group wasn’t super willing to build another 60 acres or go expand into a new region.”

In early 2021, they approached Novacap about bringing in a new partner who was interested in a longer-term investment horizon.

“We wanted someone who sees the growth potential in the industry,” Walsh says.

So why Cox? Walsh says they have the financial resources to fuel investment and are also patient partners willing to play the long game.

“They see the long-term growth opportunities and the M&A opportunities in this industry and I think they’ll be good long-term partners.” he says. “We are already having conversations about how they can make us more cost effective.”

“This business is driven on supply,” Walsh continues. “And you need supply to go to retail confidently to gain market share. If you go and add a retailer like Aldi and they add you to one of their distribution centers, that means you need that supply immediately to get into that retail chain and service that customer. If you add the customer without adequate supply, you will fail.”

Mucci prodcues a full array of crops including lettuce, peppers, strawberries and tomatoes.

Next steps

In the past, when Mucci has decided to expand, they’ve done it in one of two ways. The first, Walsh says, is by building their own greenhouses. The second is by establishing a grower network of independent greenhouse operators who market their produce through the Mucci marketing business. That will continue to be the case.

“We’ve always been of the philosophy that we need to do both,” Walsh says. “To grow successfully and be successful in this industry, we not only need to control our own greenhouse acreage but have a secured supply from other greenhouse operators. That’s part of our growth plan. We want to continue to build and grow through building. And that’s expensive.”

For an acre of greenhouse space, he says it costs between $1.3 million and $1.8 million Canadian ($1.01 million and $1.39 million USD) to build an acre of production space at their standard. In the last three years, they’ve built over 200 acres.

Walsh adds that, because Mucci produces a full array of crops including lettuce, strawberries, peppers and tomatoes, he believes it gives them an advantage to keep growing as the demand for greenhouse-grown produce grows. As they build more, the hope is that they can grow anything a potential customer needs.

“I think it’s a big advantage when you deal with large retail customers — particularly in Canada and the United States,” Walsh says. “It makes their lives much easier when they can call one guy or girl and then can give you the full assortment of commodities. I think regionally there’s a play for specific commodity needs if you are going to serve a regional player and serve your specific area. But when you’re dealing with the large national retail players — Costco, Walmart, Aldi — and they want you to offer all of the commodities for a specific region, they want to buy everything.”